Cross Plus (TSE:3320) Could Be A Buy For Its Upcoming Dividend

Cross Plus Inc. (TSE:3320) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Cross Plus' shares before the 30th of January in order to be eligible for the dividend, which will be paid on the 11th of April.

The company's next dividend payment will be JP¥15.00 per share. Last year, in total, the company distributed JP¥30.00 to shareholders. Based on the last year's worth of payments, Cross Plus stock has a trailing yield of around 3.0% on the current share price of JP¥1005.00. If you buy this business for its dividend, you should have an idea of whether Cross Plus's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Cross Plus

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Cross Plus paid out a comfortable 27% of its profit last year. A useful secondary check can be to evaluate whether Cross Plus generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Cross Plus paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Cross Plus's earnings have been skyrocketing, up 29% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cross Plus has delivered 4.1% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Cross Plus is keeping back more of its profits to grow the business.

The Bottom Line

Has Cross Plus got what it takes to maintain its dividend payments? It's great that Cross Plus is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Cross Plus is facing. In terms of investment risks, we've identified 3 warning signs with Cross Plus and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.